Exelon, politics and Illinois' low-carbon future

As a series of policy meetings kicks off Monday in Chicago to begin hashing out a plan to cut carbon emissions in Illinois, Chicago-based Exelon is busy pulling political strings to ensure it is rewarded financially for its nuclear power plants, which produce electricity without emitting carbon.

Exelon, the country's largest owner of nuclear power plants, has been meeting with the U.S. Environmental Protection Agency, asking it to change rules that would ensure the viability of all its 14 nuclear facilities, not only units that are struggling to compete. The changes would ripple across the power sector.

As Illinois lawmakers begin the lengthy process of deciding how to change the power mix to meet the state's new carbon limits, Exelon has taken strides to beef up its political might after repairing a long-standing tiff with House Speaker Michael Madigan.

"We were in bad stead with the speaker for a long time. We've managed to crawl out of that hole," said William Von Hoene Jr., who oversees corporate development, corporate strategy, legal, regulatory, government affairs, investments and communications for Exelon. The riff started in 2006 after Madigan supported a competitive energy market because he was told it would reduce prices for consumers and was surprised when electric prices suddenly spiked.

This year, Madigan put forward a resolution that will aid Exelon — it's a series of reports, expected in November and prepared by state agencies, that lay out the financial, environmental and economic benefits of Exelon's nuclear fleet in Illinois — as those plants have come under increasing pressure from power generated by wind and natural gas. More than half the power produced in the state comes from coal and natural gas plants and renewable energy, but none of those companies has received that kind of treatment from Madigan. A spokesman for Madigan did not respond.

And while environmentalists, as well as wind and solar producers, sought to repair the state's long-broken renewable portfolio standard, Exelon moved into a better bargaining position when state legislative leaders placed a proposed fix on hold this year. They said the fix should be part of broader energy legislation tied to the carbon rule.

A wording glitch has prevented the state from purchasing renewable energy or credits.

The company recently agreed to purchase the retail arm of Integrys, Chicago's power supplier. If the political support of the mayor of the state's largest population center means anything to the carbon rule debate, Exelon could earn some political goodwill by lowering electricity prices for nearly 1 million Chicagoans. That would be far less costly to Exelon, the parent company of Commonwealth Edison, than what it stands to gain from rule changes at federal and state levels.

What Exelon is suggesting here is, put all your eggs in the nuclear basket and just trust Exelon.— Lee Davis, executive vice president and regional president for NRG Energy's east region

A spokesman for Mayor Rahm Emanuel did not respond for comment.

Exelon said its motivation for acquiring the Integrys unit was not politically motivated but is part of a broader strategy to increase its consumer market for electricity.

Exelon's fight for climate change legislation spans decades. Former CEO John Rowe spent the majority of his tenure pushing for climate legislation before his 10-year fight for cap-and-trade legislation flamed out. His successor, Chris Crane, has pushed to end subsidies for wind-generated power, saying they threaten the finances of nuclear plants, which make up the vast majority of carbon-free electricity generation.

"I think a lot more people believe in global warming now than believed in it five or six years ago. You just look at all the bizarre things happening all over the world," Von Hoene said.

The proposed federal carbon rule rewards Illinois if it chooses to help prop up the 6 percent of nuclear power in the U.S. that the EPA has determined is under threat of extinction. Exelon has said that at least three of its nuclear plants in the state could be shut for economic reasons.

Von Hoene told the Tribune this week that the company is "in discussions" with the EPA to alter the rules to reward all nuclear units, not just the struggling ones.

"We're the largest clean-energy producer in the country. We've ridden that horse for a long time," he said. "If nuclear is not preserved in this country, there is no way we can meet those carbon rules."

Asked about discussions, the federal EPA did not respond to Von Hoene's statements. It said it is in the comment period on the proposed rule changes and will consider all comments.

Exelon has not submitted formal comments, but Von Hoene said, "We don't think there's any disagreement between the EPA and us on this."

Lee Davis, executive vice president and regional president for NRG Energy's east region, criticized the idea that existing nuclear plants should be propped up.

"We want to reduce carbon emissions, not maintain the status quo," he said of the EPA's goal of 30 percent greenhouse gas reductions from 2005 levels by 2030.

The goal of the carbon rule, Davis said, is to reduce carbon emissions, not to reward Exelon for something it's been doing.

Last week, NRG announced a pollution-reduction plan for its four Illinois coal-fired generating plants that it says pushes the state more than halfway toward meeting new proposed federal limits for reducing carbon dioxide pollution. And it noted it is undertaking those upgrades at its own cost, not with the help of government.

"One nuclear unit goes out and that's wiped out," Von Hoene said of NRG's pollution reductions. "While it's a sexy announcement, you can't meet these standards and have the clean air quality we aspire to without nuclear."

NRG will cease burning coal at one generating unit in Romeoville, convert its Joliet plant to burn natural gas and upgrade its two other coal plants, in Pekin and Waukegan, to comply with environmental regulations. The jobs of about 250 people will be eliminated, the company said.

"What Exelon is asking for is state funds to support nuclear units that are now uneconomic. If they're uneconomic today, they're going to be uneconomic in the future," Davis said. "We're responding to market signals, we're cutting our carbon emissions. We think something forward-thinking needs to be done. Introduce renewables to help you achieve your goal."

Davis said he'd like to see the state come up with an approach to meeting carbon-reduction goals that rewards flexibility.

"What Exelon is suggesting here is, put all your eggs in the nuclear basket and just trust Exelon," he said.

Nuclear power, which provides 20 percent of the nation's electricity, can't be switched on and off on a moment's notice; so the plants run even when they aren't making money. If the federal rule goes forward, Von Hoene said Exelon's struggling plants would make enough money to remain open.

Von Hoene said the company is not looking for a handout or a subsidy but rather a "market-based approach" that gets the state to its carbon goals. During cold weather brought on by the polar vortex, Exelon's plants ran at 95 percent capacity while others struggled to find fuel, Von Hoene said. A properly structured market would reward nuclear for being "clean" and reliable, but not exclusively nuclear.

"We want this to be a marketplace solution, not a subsidy solution. We have federal subsidies for two kinds of generation: wind and solar. That's not a market. We're picking two specific technologies. Let's decide: What's the goal? Reliable? Clean? Create a marketplace that supports those goals and let the marketplace decide," Von Hoene said.

The Illinois Commerce Commission will hold the first of three hearings Monday. It will address issues associated with coal and natural gas. Next month, the ICC will examine renewables and energy efficiency. A final hearing is expected to address nuclear power.

Environmental groups said they expect the hearings will be "contentious." While the larger goal is to reduce carbon emissions, how the state decides to achieve that has the potential to either prop up or destroy certain forms of power generation.

"It would be a bad thing if the state tried to develop their state implementation plan in a vacuum," said Sarah Wochos, Midwest co-legislative director for the Chicago-based Environmental Law & Policy Center. "They want to have some open discussions about the various options the U.S. EPA has said the state can use."

Exelon and environmental groups say they would like to see the state hash out legislation this spring, before the final carbon rule is submitted. EPA rules require state implementation plans to be submitted to the agency by June 2016.